Olympus Corp

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#1
wonder if anyone has been following the olympus scandal?

share price has taken a beating and i might be interested if it falls to 300 yen. its book value is roughly 600 yen. its balance sheet looks rather nasty though, even before the scandal was discovered.

Olympus Hid Losses With Acquisition Fees

By Mariko Yasu and Naoko Fujimura - Nov 8, 2011 3:34 PM GMT+0800


Olympus Corp. (7733) said three executives helped conceal decades of losses by paying inflated fees to takeover advisers, the first admission of wrongdoing since accusations from its former chief executive officer engulfed the Japanese camera maker four weeks ago.

Olympus shares plunged by the daily limit and pulled other Japanese equities lower on concerns the country hasn’t escaped corporate governance weaknesses that have dogged it since the stock market bubble burst at the end of 1989. Allegations by Michael C. Woodford have wiped 70 percent from the value of the company’s stock since he was axed as CEO on Oct. 14

“Institutional investors will stay away from Japan’s market until they confirm this is an isolated case,” said Koichi Kurose, chief economist in Tokyo at Resona Bank Ltd. Some “investors probably think that if there’s one cockroach, there may be 10 more,” he said.

Former Olympus Chairman Tsuyoshi Kikukawa was involved in the cover-up, President Shuichi Takayama told reporters in Tokyo today. Executive Vice President Hisashi Mori, who was fired today, and auditor Hideo Yamada also took part, he said, reversing weeks of denials of any wrongdoing in the 2008 purchase of Gyrus Group Plc and three other takeovers.

Japanese and U.S. regulators are probing allegations by Woodford that more than $1 billion was siphoned through offshore funds. Olympus released a statement this morning saying an independent investigation found advisory fees and takeover payments were used to hide soured investments from the 1990s.
‘Tobashi’

Olympus’ revelations echo the practice of hiding losses known as “tobashi” that became widespread in Japan in the late 1980s and led to the failure of Yamaichi Securities Co., according to Yasuhiko Hattori, a professor at Ritsumeikan University in Kyoto. Yamaichi used overseas paper companies to hide problematic securities, until it failed in 1997 with 260 billion yen ($3.3 billion) in hidden impairments.

Takayama declined to comment on the involvement of any securities firms in Olympus’ cover-up. The Topix Securities and Commodity Futures Index fell 11 percent, the most of any industry group in the broader gauge. Nomura Holdings Inc. (8604) tumbled 15 percent to the lowest in 37 years; Daiwa Securities Group Inc. dropped 7 percent.

Olympus plunged 29 percent in Tokyo trading, closing at 734 yen. The Topix ended 1.7 percent lower, the worst-performing Asian stock index.
Inherited Losses

The Tokyo Stock Exchange said it’s considering moving the shares in Olympus, the world’s biggest maker of endoscopes, to a watchlist for possible delisting. Takayama pledged to continue with the investigation into the losses, which he said were probably inherited by Kikukawa.

“The investigation must continue to determine how much rot there is,” said David Herro, chief investment officer of Harris Associates LP. “All responsible must, at a minimum, leave. Also, since the management’s credibility is nearly nonexistent, all of what they say must be verified.”

Woodford should return to run the company and conduct the “house cleaning,” Herro said in an e-mailed comment to Bloomberg News and on Bloomberg Television. Harris held 10.9 million Olympus shares as of June 30, a 4 percent stake that makes it the company’s second-biggest overseas investor.

While Olympus President Takayama today spoke of the anger he felt over the losses, he said there’s no plan for Woodford to return.

Obligation: Woodford

“There are about 45,000 workers,” Woodford said in a Bloomberg TV interview today. “I feel a great sense of obligation to them and would go back -- as president and CEO.”

Former chairman and president Kikukawa, who had Woodford removed, resigned on Oct. 26 as investors increased pressure for a review of the deals. Kikukawa denied any wrongdoing when he stepped down and said he intended to stay on the board.

The company set up a six-person independent investigation, including two former judges and a retired prosecutor, to probe the $1.4 billion of writedowns and fees related to acquisitions.

Olympus paid a total of 73.4 billion yen to increase stakes in Altis Co., News Chef Co. and Humalabo Co. between 2006 and 2008, which was also used to hide losses, it said today. Olympus wrote down 55.7 billion yen, or 76 percent of the acquisition value, in March 2009, the company said in a statement Oct. 19.
Unrelated Acquisitions

Olympus last week said the acquisitions of three Japanese companies unrelated to its main operations were part of an attempt to diversify earnings.

After being fired, Woodford went public with his concerns raised with Kikukawa and Mori over $687 million paid in advisory fees in the $2 billion acquisition of U.K. medical-equipment company Gyrus and the writedowns. All the transactions involved payments to Cayman Islands companies or special purpose vehicles whose beneficiaries are not known.

The U.S. Federal Bureau of Investigation is probing the allegations, according to Woodford, who said he has also met with the Serious Fraud Office in London.

The probes center on more than $600 million in fees paid to Axam Investments Ltd., a now-defunct Cayman Islands fund connected to U.S.-based Japanese banker Hajime Sagawa.

Mori, a key official involved in the Gyrus takeover according to U.K. company records, on Oct. 27 declined to name the person who introduced Sagawa to Olympus.

Repeated attempts to reach Sagawa at his registered address in Boca Raton, Florida, have been unsuccessful, as have efforts to trace the owners of Cayman entities paid for the three other acquisitions.

“The money went to those shareholders,” Mori said at the Oct. 27 briefing in Tokyo. “We have no idea who they are.”

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

To contact the editor responsible for this story: Ben Richardson at brichardson8@bloomberg.net
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#2
Hey Karl, I'm always interested in crisis stocks... but this one seems a little hard to digest. Because there's no free lunch by the government. Anyway I'll just put in my watchlist for the time being...
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#3
Personally speaking...............

1. I believe the only way Olympus stands any chance of restoring a modicum of credibility with the shareholder community is to restore the recently ousted Gaijin/MatSalleh CEO. The current Board of Directors has zero credibility and needs to go soonest. Expect lawsuits.............. and as such surely Olympus is currently only a stock investment for the brave.

2. I do fear we are seeing the tip of the iceberg here - I worry that similar obscene practices have been practiced by other Japanese companies, where Governance standards appear to be so low.......... and tolerated.
RBM, Retired Botanic MatSalleh
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#4
(09-11-2011, 02:58 PM)RBM Wrote: Personally speaking...............

1. I believe the only way Olympus stands any chance of restoring a modicum of credibility with the shareholder community is to restore the recently ousted Gaijin/MatSalleh CEO. The current Board of Directors has zero credibility and needs to go soonest. Expect lawsuits.............. and as such surely Olympus is currently only a stock investment for the brave.

2. I do fear we are seeing the tip of the iceberg here - I worry that similar obscene practices have been practiced by other Japanese companies, where Governance standards appear to be so low.......... and tolerated.

Indeed. After the bursting of the bubble in property and equities in the 1990s, it seems many companies were, in fact, swimming naked!
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#5
The Straits Times
Nov 10, 2011
The fall of mighty Olympus

Company's very existence in jeopardy after cover-up scandal

By Kwan Weng Kin

TOKYO: The share price of optical equipment maker Olympus plunged to a post-bubble low yesterday with the company's very existence hanging in the balance over a decades-long attempt to conceal massive investment losses.

Olympus shares dived 20.43 per cent to close at their daily lower limit at 584 yen, after plummeting 29 per cent on Tuesday.

Analysts said the future of the 92-year-old company was now in question, with the possibility of delisting from the Tokyo Stock Exchange once investigators get to the bottom of the issue.

'The scandal is likely to tarnish Olympus' brand reputation,' Nanako Imazu of Asia-Pacific brokerage CLSA said in a research report, adding that the impact on camera sales 'may be more visible' than on its endoscope business.

Nippon Keidanren, Japan's most powerful business federation, is considering taking disciplinary action against Olympus. And with roughly 70 per cent of the global market for endoscopes, the firm could well be swallowed up by rivals, analysts said.

'The possibility can't be denied' that Olympus could collapse, Tokyo-based Rating & Investment Information analyst Yuta Ishinoda told the Wall Street Journal.

The firm on Tuesday downgraded Olympus' credit rating two notches to a BBB-plus, indicating 'sufficient' creditworthiness, rather than 'high', and warned there could be more downgrades.

Olympus revealed on Tuesday that it had covered up securities investment losses since the 1990s, using four dubious acquisitions made a decade later to hide the losses.

Many Japanese companies saw the value of their stocks soar to record highs during Japan's asset bubble from 1986 to 1991, then crashing when stocks and real estate markets collapsed.

Olympus' market value, which topped 670 billion yen at its peak during the bubble, has fallen nearly 80 per cent since the scandal came to light in mid-October when then president Michael Woodford, a Briton, blew the whistle on the dubious acquisitions.

In an about-turn on Tuesday, Olympus president Shuichi Takayama admitted the company had resorted to 'inappropriate accounting' to keep huge investment losses off its books.

Reports said Japan's move in fiscal 2000 to fair value accounting, which lists assets at their potential market price, threatened to force Olympus to make public those losses.

To avert this, the company plotted with trusted associates in the securities industry to move the soured investments into off-balance-sheet investment funds.

Mr Takayama declined to reveal the size of the company's investment losses, saying a probe by a third-party panel was still in progress. But a report by the influential Nikkei business daily yesterday, quoting unnamed sources, said the company had concealed losses of more than 100 billion yen (S$1.6 billion).

Olympus has pinned the blame for the concealment on three figures - its former chairman and president Tsuyoshi Kikukawa, executive vice-president Hisashi Mori and company auditor Hideo Yamada. The company has sacked Mr Mori while Mr Yamada is slated to resign.

Although Mr Takayama said Olympus began to hide the losses in the 1990s, he acknowledged the scam could have started much earlier and involved others.

However, ex-Olympus president Toshiro Shimoyama, who led the company from 1984 to 1993, told Nikkei yesterday he could not recall the company hiding losses on securities during his tenure.

He said he was not shown all the company's detailed financial statements.

Olympus' largest foreign investor Southeastern Asset Management has demanded the resignation of the company's entire board.

Meanwhile, Japan's securities watchdog, the Securities and Exchange Surveillance Commission, has started a probe and in the United States, the Federal Bureau of Investigation is doing the same.

Nippon Keidanren, the business federation, plans to meet this month to discuss disciplinary action after talking with Olympus officials.

wengkin@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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